MSFT Stock Analysis: 3 Key Pillars That Make Microsoft a Resilient Tech Play

Stock Market

For any other company, the CrowdStrike (NASDAQ:CRWD) debacle might have spelled doom. But, as always, Microsoft (NASDAQ:MSFT) stock has risen like a Phoenix from the so-called ashes.

It demonstrates impressive resilience no matter how challenging the market conditions are. Or the fallouts from various unpleasant events.

Three key drivers – a dominant subscription business model, cloud computing leadership, and gaming/metaverse momentum – position Microsoft for continued success despite recent turbulence.

While the CrowdStrike situation appeared concerning initially, it’s important to take a long-term perspective. Microsoft has overcome setbacks before to deliver strong shareholder returns.

Looking ahead, Microsoft benefits from three pillars that should drive growth. First, the Microsoft 365 subscription model and other software provide stable recurring revenue streams.

This mitigates volatility. Second, Microsoft Azure continues taking market share in the booming cloud computing industry. Its 30% annual growth shows potential as a key future profit driver.

Finally, major gaming acquisitions like Activision Blizzard strengthen Microsoft’s position in gaming and metaverse development – two additional high-growth markets.

Together, these three AI-fueled pillars reinforce why long-term investors should remain confident in Microsoft, despite some temporary challenges on the horizon. Subsequent sections will explore each driver and how Microsoft is positioned moving forward.

Microsoft Stock Rebounds from CrowdStrike Setback

On July 18, a software update from cybersecurity firm CrowdStrike caused some Windows systems globally to crash. It affected over 8.5 million devices across critical sectors like healthcare and transportation. And showed how reliant we are on computer systems.

Of course, unsurprisingly, Microsoft stock dropped over 6% in the aftermath. The fact that it wasn’t more and that the stock price rebounded within a week shows how strong the company is.

This is not Microsoft’s first brush with uncertainty. Over its 47-year history, the tech giant has overcome antitrust battles, product flops, executive changes, and more.

Its proven track record instills confidence that Microsoft can address the CrowdStrike situation and prevent similar failures down the road.

Already, discussions have begun regarding restricting third-party access to the Windows kernel. Tweaks like these may prioritize stability over functionality moving forward. But Microsoft’s dominance has never solely relied on Windows.

As explored next, cloud computing and gaming increasingly drive revenues. So while the CrowdStrike incident was undoubtedly jarring, Microsoft stock has good reasons to minimize lasting affects.

Its three core pillars should propel continued success despite some temporary unpleasantness.

Three Pillars Reinforce Microsoft’s Resilience

Microsoft recently reported strong fiscal Q4 2024 earnings results. For example, revenue grew 15% to $64.7 billion, driven by the key pillars outlined earlier.

First, Microsoft’s subscription-based business model continues fueling growth. For instance, sales in the Productivity and Business Processes segment climbed 11% to $20.3 billion. Additionally, Office 365 commercial revenue expanded by 13%, showing how integral subscription software has become.

Second, Azure cloud computing leadership persisted with 29% higher sales, while server product revenue jumped 21% overall.

Microsoft is steadily chipping away at AWS through strong enterprise adoption. Over 80% more $100 million-plus Azure deals were signed last quarter.

Finally, gaming and metaverse momentum stayed robust after the Activision acquisition. Xbox content revenue surged 61%, illustrating this division’s immense potential.

While hardware sales declined, Microsoft smartly focused on gaming subscriptions and software. So despite factors like the CrowdStrike incident and macroeconomic uncertainty, Microsoft keeps executing.

Its three core pillars – subscriptions, cloud computing, and gaming/metaverse – showcase enviable resilience. More enterprises and consumers continue turning to Microsoft solutions across these high-growth segments.

The Bottom Line: Stick with Microsoft Stock for the Long Haul

Even with the recent CrowdStrike mishap, Microsoft has showcased sturdy resilience before.

It boasts strong fundamentals across three high-growth segments – subscriptions, cloud computing, and gaming/metaverse. So long-term investors should feel reassured sticking with this tech titan.

That being said, it’s understandable to feel unnerved by the stock’s premium 34.59 P/E ratio.

In addition, using the DCF valuation method, the stock is rather overvalued from a Future Cash Flow point of view. Value investors in particular may want to wait for a more appealing entry point.

In the meantime, current Microsoft shareholders can remain confident in its subscription-based business model, Azure cloud dominance, and gaming/metaverse momentum carrying it higher over time.

Monitor how the company addresses stabilizing Windows but don’t let short-term noise shake conviction in those three pillars.

Even through ups and downs, Microsoft has always overcome challenges in the past. It still looks poised to deliver market-beating returns for years to come.

On the date of publication, Andrea van Schalkwyk did not hold (either directly or indirectly) any positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.

Andrea van Schalkwyk is a value investor who adheres to the principles of the renowned Warren Buffett and his mentor Benjamin Graham. He holds a Master of Engineering (MEng) from the University of Padua and an Executive MBA from the CUOA Business School.

Articles You May Like

The AI Stocks Poised to Dominate the Market by 2025
Art Cashin, New York Stock Exchange fixture for decades, dies at age 83
Small Caps: Unexpected Outperformance Could Drive Gains in a Hurry
These economists say artificial intelligence can narrow U.S. deficits by improving health care
How GE Vernova plans to deploy small nuclear reactors across the developed world